Consumer Inflation Expectations Deflate

December’s New York Fed survey showed that one-year consumer inflation expectations fell to their lowest level since July 2021 (5%). 🔻

Given the decline in retail gasoline prices over the last few months, it’s not surprising that consumers are a bit more optimistic. With that said, food prices remain elevated and continue to pinch people’s wallets. On that front, consumers expect gas to rise 4.1% and food to rise 7.6% over the next year, both down from the previous month.

Are things truly improving? Or have our brains just been melted enough by red-hot prices that we’re just hoping for the best? 🤔

It’s hard to tell. But we know that household spending expectations also fell to 5.9%, their lowest level since January 2022. So while consumers are optimistic that inflation pressures are easing, they also expect to tighten their belts amid the economic uncertainty.

And when it comes to housing, Fannie Mae’s sentiment index showed some improvement in December. Although the percentage of people saying now is a good time to buy is still historically low, it ticked up from 16% to 21%. Additionally, the majority of consumers believe that home prices and mortgage rates will fall in the next 12 months. 🏘️

One area survey participants remain optimistic about is the labor market. Only 40% of respondents believe the unemployment rate will be higher in 12 months.

If the majority is right, that means the Fed’s uphill battle against inflation is likely to continue. 🤷

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